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Selling land and restricting its use using land covenants

31 May 2015

Alex and Sue’s problem

Alex and Sue have subdivided two extra titles from their farm to be sold as lifestyle blocks. They have heard about farmers having problems selling lifestyle blocks to townies who then complain about the noise and smells from normal farm activities. They want to prevent the new owners from complaining about the noise from their tractors and motor bikes, the smell from their cows and the weed spraying and fertiliser application on their farm. They also want to make sure the houses built on the lifestyle blocks are of a good quality and they want to prevent shooting on the land.

A solution – land covenants

Alex and Sue can place restrictions on the use of the land by arranging for land covenants to be registered against the titles. The land covenants could state that the lifestyle block owners must not do anything which might restrict Alex and Sue’s farming activities, they must not shoot on the lifestyle blocks, and Alex and Sue must approve any building on the land. (The covenants stating that the lifestyle block owners cannot object to Alex and Sue’s farming operations are called ‘reverse sensitivity’ or ‘no complaints’ covenants.)

Alex and Sue can either register the land covenants before they sell the lifestyle blocks or at the time they sell them. If the land covenants are to be registered at the time the blocks are sold, then Alex and Sue would need to include details of them in the agreement for sale and purchase. Once the land covenants have been registered, anyone can search the affected titles and see that the lifestyle blocks are subject to the land covenants and the farm has the benefit of the land covenants. New residential subdivisions these days are almost always subject to land covenants to uphold the quality and value of the housing and lifestyle in the subdivision.

What if the new owner doesn’t comply with the restrictions?

The land covenants could allow Alex and Sue to claim a substantial monetary penalty from the new owners if they do not comply with them. Alex and Sue could also take legal action to enforce the covenants. Usually the owner’s liability for breaching the land covenants ends when the land is sold.

It’s not that simple

Although it’s now possible to create and register a wider range of land covenants than in the past, a landowner’s ability to enforce land covenants is subject to some complex legal rules. Whether or not land covenants can be enforced may depend on when they were created. Some of the land covenants registered in the past are unenforceable, either because they are poorly drafted or the law will not support them. If you’re considering registering land covenants, you should ensure they are carefully drafted so they achieve your objectives.

Please email me at barbara.mcdermott@nwm.co.nz with your ideas for future articles. Keep an eye out for next month's column, where I will discuss another relevant rural legal issue.

Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.